Ways to promote clean transportation

LUBNA KABLY, ET BureauMar 25, 2011, 07.51am IST

In a quaint conversation between Alice, of the Alice in Wonderland fame and Humpty-Dumpty, the latter keeps reiterating a promise made to him by no other than the King, to put him together again, if he fell off the wall. But, we know the gory end result.

There are many such promises made in the Finance Bill, 2011, which perhaps are made with the right intent, but at this juncture one is skeptical of the results.

For instance, in his Budget speech, our finance minister (FM) had remarked: "The Indian automobile market is the second fastest growing in the world and has shown nearly 30% growth this year. World over, substantial investments are being made in the field of hybrid and electric mobility. To provide green and clean transportation for the masses, National Mission for Hybrid and Electric Vehicles will be launched in collaboration with all stakeholders." Alice would probably ask quite a few questions, such as: How? When?

Hybrid and electric mobility requires a lot more to be done in India, rather than just R&D in this sector - such as proper roads, but that is another story. In India, hybrid or electric cars will have limited usage, by a limited number of people, on some limited routes. Yet, this announcement will perhaps (if one is as optimistic as Humpty Dumpty) be a beginning.

Some countries are not only pumping money into R&D efforts to promote the green auto sector but are also providing tax credits to the end-user. In the US, tax credit was available to hybrid diesel-electric cars, under the Energy Policy Act, 2005, which ended in December last year. These had granted up to $3,400 as a tax credit for the most efficient hybrid cars and $4,000 for a compressed natural gas vehicle.

However, there was a catch. This policy called for a phase-out of the tax credit when any specific automaker sold more than 60,000 hybrid or clean-tech vehicles. News reports indicate that certain Toyota and Lexus hybrids became ineligible for tax credits much earlier in September 2007.

Now the focus in the US is on electric vehicles. Indeed, federal and state legislations offer many 'greenies' to the end-user. The tax credit can be as much as $7,500 plus a $2,000 credit for charging equipment installation. In 2009, Japan, in its tax reform bill, waived an automobile weight tax for people buying hybrid cars and electric vehicles. News reports suggest that normally, people purchasing new cars pay the automobile acquisition tax, which is equivalent to roughly 5% of the car's price, and three year's worth of the weight tax. This means a person buying a ?2million car that weighs 1.3 tonnes has to pay approximately ?1,6,700 in taxes. If the car is a hybrid or an electric vehicle, the taxes will be waived completely. Other types of environmentally-friendly cars also receive 50-75% tax reductions depending on their fuel economies and exhaust emissions.

In addition, Japan also imposed a higher levy on gasoline. By adopting a carrot-and-stick approach, many hybrid or electric car models, such as Toyota's Prius, became a runaway success in Japan.

As Zenobia Aunty's tiny car (not an expensive hybrid, but not a petrol-guzzling vehicle either) shudders as it passes a huge pothole, she grimaces. But, she is kind enough to let us know that a few concrete announcements have also been made. Full exemption from basic customs duty and a concessional rate of central excise duty has been extended to batteries imported by manufacturers of electrical vehicles. The government has announced excise duty of 10% on vehicles based on fuel cell technology. Exemptions have also been granted from basic custom duty and special CVD, to critical parts/assemblies needed for hybrid vehicles. The government has also proposed a reduction in excise duty on kits used for the conversion of fossil fuel vehicles into hybrid vehicles.

Indirect tax experts point to a slight snag in the above and say certain clarifications are required. In India, car manufacturers tend to import completely knocked down (CKD) kits and carry out assembling in India. As per a recent notification, a CKD unit means a unit having all necessary components, parts or sub-assemblies for assembling a complete vehicle but does not include a kit containing a pre-assembled engine, gear box or transmission mechanism; nor one that includes a chassis or a body assembly for a vehicle. The fear is that these kits may continue to be subject to higher basic custom duties, despite the intent to promote import of assemblies needed for hybrid vehicles.

The Mumbai heat, the pollution and the long drive is getting to Zenobia Aunty. So you are sure, she will keep a watch out on how the National Mission for Hybrid and Electric Vehicles will pan out.